Overview of Alternative Investment Fund Managers (AIFMs)

Definition and Role of an AIFM

Each Alternative Investment Fund (AIF) must have a single AIFM responsible for ensuring compliance with the AIFM Law. The AIFM can be:
● An external manager, a legal entity appointed by or on behalf of the AIF to manage it
(external AIFM).
● Internally managed, where the AIF’s legal structure allows internal management, and its
governing body opts not to appoint an external AIFM, making the AIF itself the AIFM.

Core Functions of an AIFM

When managing an AIF, the AIFM must perform at least the following core investment
management functions:
● Portfolio management.
● Risk management.

Additionally, an AIFM may be authorized to handle other functions in the collective management of an AIF, including:
● Administration, such as legal and fund management accounting services.
● Handling customer inquiries.
● Valuation and pricing, including tax return preparation.
● Monitoring regulatory compliance.
● Maintaining the unit/shareholder register.
● Managing income distribution.
● Processing unit/share issues and redemptions.
● Settling contracts, including certificate dispatch.
● Record-keeping.
● Marketing services.
● Activities related to the AIF’s assets, such as meeting fiduciary duties, facilities management, real estate administration, advising on capital structure, industrial strategy, mergers, acquisitions, and other services tied to the AIF’s management and investments.

Additional Investment Services

An external AIFM, without needing separate MiFID authorization but subject to MiFID rules, may also provide:
● Discretionary, client-by-client portfolio management, including for pension funds and occupational retirement institutions, based on investor mandates.
● Alongside portfolio management, additional services like:
○ Investment advice.
○ Safekeeping and administration of shares or units in collective investment undertakings.
○ Receiving and transmitting orders for financial instruments.

Dual Licensing

An external AIFM may also obtain a license to act as a UCITS management company, subject to authorization under the UCITS IV Directive (2009/65/EC).

AIFM Law in Cyprus

The Cyprus AIFM Law (Law 56(I)/2013), effective from July 5, 2013, transposes the AIFMD into Cyprus legislation. It aligns with the AIFMD framework, establishing rules for AIFM authorization, capital requirements, operating conditions, governance, risk management, delegation, remuneration, reporting, depositary requirements, and marketing. EU Regulations, such as Commission Delegated Regulation 231/2013 (Level 2), effective from July 22, 2013, supplement the AIFMD with details on exemptions, operating conditions, depositary rules, leverage, transparency, and supervision, and are directly applicable in Cyprus without local transposition. The Cyprus Securities and Exchange Commission (CySEC) is the competent authority for regulating and supervising AIFMs under this law.

Scope of the AIFM Law

The AIFM Law applies to:
● Cyprus AIFMs managing Cyprus AIFs, or AIFs from other Member States or third countries.
● EU or third-country AIFMs managing Cyprus AIFs.
● Cyprus AIFMs marketing AIF units or shares in other Member States or third countries.
● EU or third-country AIFMs marketing AIF units or shares in Cyprus.

An investment fund manager must be authorized as a Cyprus AIFM if:
● Its head and registered offices are in Cyprus.
● It is a legal entity whose primary business is managing one or more AIFs, regardless of their legal form, location (EU or non-EU), structure (open-ended or closed-ended), or listing status.
● The total assets under management (AuM) of all AIFs it manages exceed:
○ €100 million (including leverage), or
○ €500 million (for unleveraged funds with a 5-year lock-up period).

The AIFM can either be an external manager or the AIF itself if its legal form permits internal
management and its governing body chooses not to appoint an external manager